IT attrition may spike again as firms delay performance-linked payouts

A decision to hold back variable pay by top IT companies such as could imply softening revenue growth for the $200 billion software services export industry. It could also mean attrition — which has already touched unprecedented levels — could further spike up due to the cut in the performance-linked incentive, analysts told ET.

This comes as Wipro last week communicated to employees that mid-to senior-level staff will not receive their variable pay for June-ended quarter while junior associates will get only 70% of the targeted pay.

too had delayed a performance bonus by a month for a certain band of employees due to “administrative” reasons.

“The growth could be tapering as multiple companies have indicated that there has been holding back or ramped down discretionary spends, customer experience and certain non-critical tech upgradation spends. They are now only engaging in ‘keep the lights on’ projects which are for business continuity involving infrastructure and maintenance related projects which are low-margin projects,” said Aditya Mishra, chief executive of CIEL HR services. Bengaluru-based IT company Wipro could see up to a 100 basis point improvement in margin but along with up to 200 basis points uptick in attrition due to this development, Mishra said.

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Analysts say the companies will be taking to undertake bold moves to cut costs as attrition may have peaked. Wipro has managed to keep its attrition rates relatively flat as compared to its peers, with the April-June level down to 23.3% from 23.8% in the sequential period. Other IT majors — TCS,

and reported an uptick in the metric during the same period.

“This (move) will ease operating margin pressure in the near term. However, it implies a concerning growth picture. Performance based incentive cut is the definitive sign of soft revenue growth,” said Ruchi Burde Mukhija, vice president of Technology & Internet Equity Research at Elara Capital. “In addition, the talent woes for industry are not yet over. Thus, Wipro’s variable pay cut move carries additional risk of attrition increase,” Burde added.

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In the last quarter, IT companies have seen their operating margins being significantly squeezed due to inflated employee costs due to high attrition and high wage costs due to salary hikes and other incentive measures being deployed to stem the employee churn. Wipro said in an email last week that employees belonging to C bands and above (managers to C-suite level) will not receive any variable payouts, while associates in A and B bands (freshers to team leader levels) will receive 70% of the target variable pay for the quarter subject to a billability threshold.

“We’ve seen some continued pressure on operating margins. Our Q1 margins were lower at 15% due to inefficiency in our talent supply chain, project margins and our investments in talent, technology and solutions during the quarter… Given our underperformance on margins this quarter, our variable pay (including sales incentives) takes a hit,” the company said in the email.

Incentives for employees in their sales teams have also taken a hit. Variable payout for executives in C band and above is based on three metrics, revenue, order book and margins.

(TCS), India’s largest IT services company by revenue, on the other hand has delayed performance bonus or variable compensation payout by a month for C3A, C3B, C4 and equivalent grades by a month.

“All our compensation and bonus cycles are as per plan,” TCS said in a statement in response to ET’s queries.

Sources with the company said this was an “administrative issue” which will impact on a small percentage of employees and the delay is not due to cost concerns.

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